Recalling polaris stock

November 18, 2016 11:00 AM
Polaris Industries Inc. (PII), with its segments of off-road vehicles including snowmobiles and motorcycles, and global adjacent markets, is skidding down the short track.

Polaris Industries Inc. (PII), with its segments of off-road vehicles including snowmobiles and motorcycles, and global adjacent markets, is skidding down the short track. The company, founded in 1954, has faced significant downgrades since the recall of its off-road vehicle RZR ROV due to fire hazard considerations. 

Polaris, a fixture in the off-road industry designs, engineers, manufactures and markets these products in the United States, Canada, Western Europe, Australia and Mexico. However, the  recent recall has exceeded costs and turned Polaris into a fading star. 

Medina, Minn-based Polaris is known to market its products via dealers, secondary distributers and directly through its website Polaris.com under the following brand names: RANGER, RZR, RANGER Crew, Polaris RUSH, Victory Vision, Victory Cross Roads, Cross Country, Indian Chief Classic, Indian Chief Vintage, Indian Chieftain, Roadmaster, Scout, Scout Sixty, Victory Magnum and Hammerhead Off-Road. 

The recall of its off-road vehicles lowered earnings guidance for 2016 to $3.30-$3.80 per share from $5.80-$6.80 per share. This was lessened additionally to a flat to down 2%. The recall costs of roughly 284,000 vehicles have exacerbated internal cost overruns. Polaris’ attempt to repair its previously recalled off-road vehicles was also met with an underestimation of its assumed expenses and is now poised for the delay of its 2017 models, signalling weakness and pessimism. 

However, there is more than just a recall that is behind Polaris’ failing, which started well before when the company’s stock was trading above $110. That was well within the high-digit multiples based on $7 per-share earnings on a year- to two-year extended pattern. Note that the multiple recalls were causative of its plunge through its 50-day moving average in early May 2016 when it was still trading near $100. This developed into a reversal head-and-shoulder pattern with a left shoulder at $98.34, right shoulder at $98.13 and a head at $90.44 set in mid-August 2016 (see “Recalled”). 

Prior to that Polaris attempted a reversal rallying through its 50- and 200-day moving average in July, but the severity of the recall caused PII to fail and plunged it in a step pattern that took out support at the 50- and 200-day moving averages, and finally skidded to a bottoming at $70.14. Any reversal attempt since Sept. 19 has failed to refill this downed gap of $82 to $77. Its recent reversal attempt from an established low of $70.14 met a resistance at $79, before sliding back to the $73 area. Its second reversal attempt was simply too shallow to complete any filling of its downed gap of 82 to 77.

Polaris is challenging its primary support of $65 with a secondary support of $51 in the offing. This star may be not only be dimming, but heading for a super nova of further short potential.

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